HR Holdings, LLC. v. Horstmann

HR Holdings, LLC. v Horstmann 2025 NY Slip Op 32477(U) July 11, 2025 Supreme Court, Kings County Docket Number: Index No. 522942/2024 Judge: Reginald A. Boddie Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service.

This opinion is uncorrected and not selected for official publication.

FILED: KINGS COUNTY CLERK 07/11/2025 10:54 AM INDEX NO. 522942/2024 NYSCEF , DOC. NO. 51 RECEIVED NYSCEF: 07/11/2025

At an IAS Commercial Term Part 12, of the Supreme Court of the tate of ew York, held in and for the County of Kings, at the Courthouse, located at 360 Adams Street, Borough of Brooklyn, City and State of ew York, on the 11th day of July 2025.

PRES E T: Honorable Reginald A. Boddie, JSC ----------------------- ------------------------------------x, HR Holdings, LLC., Index o. 522942/2024 Plaintiff Cal No. Inquest Decision -against-

George Horstmann, individually, and Jack Bear Farms LLC, Defendants -and- Vernon Fann & Market, LLC, ominal Defendant. ------------------------------------------------------------x

Plaintiff, HR Holdings, LLC ("HR ) commenced the within action alleging breach of contract, unjust enrichment, breach of fiduciary duty, as well as seeking judicial dissolution, punitive and other damages related to Defendants' alleged failure to perform their obligations in conducting a cannabi business with the Plaintiff. Defendants failed to answer, and a default was entered. The within matter was set down for an inquest on damages. The inquest hearing was conducted on June 27, 2025.

Da id Powers ("Powers") is the CEO and founder of HR Holdings LLC ( HR"). Powers, interested in developing a cannabis business in New York's new thriving industry, contacted Defendant Horstmann for assistance. Horstmann had a cannabis license. HR, Horstmann, and Vernon Reilly of Vernon Fann & Market, LLC ("Vernon") formed Jack Bear Farms, LLC ( Jack Bear") for the purposes of cultivating and selling cannabis. The parties signed an Operating Agreement, which recognized their initial investments

[* 1] 1 of 4 FILED: KINGS COUNTY CLERK 07/11/2025 10:54 AM INDEX NO. 522942/2024 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 07/11/2025 in the Jack Bear venture as HR $31 ,660.02 Horstmann, $30,000, and Vernon $18,000 (exhibit 1). The parties ' relative percentage of membership interest was also recorded as 95% Hortsmann, and 2.5% each for HR and Vernon (exhibits I and 4). The parties agreed to share net profits after payment of rent to Vernon Farms for land (exhibits 2 and 3). The designated net profit percentages were reflected as 51 % for Horstmann, and 24.5% each for HR and Vernon (exhibits 2 and 3).

Powers testified that he cleared the land and cleaned the facilities, bought the necessary seeds, and traveled to New York State from Tennessee regularly to cultivate the business at significant expense. He stated he received little in return because Horstmann never developed an account for the business, as required by law, or cashed any of the checks amounting to approximately twenty to thirty thousand dollars, which he is believed to still have possession of. Power also testified that Hor tmann was responsible for handling accounting-related matters for the business and filing tax returns, but he stated that no tax returns were ever filed and no tax documents were ever issued to him. Plaintiff alleges he incurred $3 08,227.92 in damages, inclusive of attorneys' fees and interest, from June 6, 2024.

Powers stated that he incurred significant expenses for travel and products, including seed for the business, totaling $109,499.55 (exhibit 7), and $122,138.03 forunused Hemp and flowers, due to spoliation, less $20,000 for product he was able to sell for a total of $102,138.03 (exhibit 6). He admits when the product was grown the partie received their respective share of the product as anticipated . However, he states he could not sell the product because Horstmann wou ld not participate in allowing the use of his license, as wa previously agreed. onetheless, he did find a buyer to work with although that buyer wa only able to dispense with $20,000 of the product. Plaintiff also seeks attorneys ' fees in the amount of $44, 979.72 through June 6, 2025.

After hearing and weighing the credible evidence, the Court declines to award Plaintiff its Capital Investment, which includes the initial investment of $31 ,000, and additional expenses so ught herein, de cribed as travel tools or otherwise. Section 5.3 of the Operating Agreement provides, in part that "no Member shall have any right to demand a return of such Member's Capital Contribution or any Distribution from the Company, except upon dissolutio n pursuant to Article 11 hereof. .. "

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Plaintiff alleges that he incurred an initial investment plus additional expense and labor to harve t cannabis for the purpose ofreaping a harvest to sell. However, as reflected by his testimony, he voluntarily took on these tasks and expenses since no one else stepped forward. Further, the harvest sought was obtained and HR received its proportionate share, although HR lost significant profits in the effort to sell it because Hortsmann refu ed to permit the use of his license, as was previously agreed . Nevertheless awarding Plaintiff its total investments, as well as the alleged lost profits, would result in a double recovery in a transaction that Plaintiff understood from the outset to be merely an investment venture. Accordingly, Plaintiff is awarded $102 138.03 for the unused Hemp which was specifically designated as his share and ruined due to spoliation after Hortsmann refused to assist him with selling it by utilization of his license.

Plaintiff is also awarded attorneys ' fees in the amount of $44,000 pursuant to paragraph 7.2 of the Operating Agreement and the terms of the Confidential Letter Agreement.

At this juncture, the Court declines to award Plaintiff other investment and business-related expenses sought in light of paragraph 6.6 of the Operating Agreement, which provides: "The Company may, but shall not be obligated to provide, compensation (in th form of priority Distribution of profits guaranteed payments, or otherwise) to Members for services provided to the Company, pursuant to a separate services agreement or oth.erwise; provided, however, that the terms of any such compensation shall be subject to the approval of a Majority Interest of the Members.' Accordingly, it is: Ordered that Plaintiff shall have a judgment in the amount of $102, 138.03 , for lost profits, $10,334.35 for testing, plus interest from June 6, 2024, and attorneys ' fees in the amount of $44,979.00, plus co ts; and it is, Ordered that Jack Bear Farms LLC, shall be wound up pursuant to Section 703 of the Limited Liability Law and dissolved pursuant to Section 702 of the New York Liability Company Law; and it is, Ordered that Plaintiff shall be entitled to any additional reasonable attorneys ' fee and expense associated with the winding up and dissolution of Jack Bear Farms LLC, as well as a credit for his Initial Capital Investment, in the event a profit is realized, subject to Court approval, and it is

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Ordered that the Members may agree to any additional compensation of Plaintiff for business expen es associated with the venture, as provided for in paragraph 6.6 of the Operating Agreement.

ENTER:

Honora~~L A. Boddie Justice, Supreme Court

HON. REGINALD A. BODDIE J.S.C.

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